Wednesday, August 3, 2011

Foreign Aid: Is it effective?

It is difficult to judge whether foreign aid has been an effective strategy for encouraging “development” as there are somewhat hazardous definitions and assumptions floating around both concepts (aid and development). To determine whether the effects of foreign, or even domestic, aid leads to desirable outcomes depends on the circumstances to which that aid was applied and how the outcomes were defined and were to be measured.

The World Bank takes a round-a-bout way of defining “development” in terms of economic growth. Economic growth itself is related to a general increase in a society’s wealth. Wealth, in this sense, would imply a net decrease in poverty in an economy to its capacity to provide goods and services that directly contribute to, more-or-less, westernized ideals of a quality life (access to effective health care, sanitation, potable water, safety, education and economic opportunities, democracy and so on). [i] Thus, development is often associated directly to reductions in poverty and its associated chronic problems (health, sanitation, even an enabler of democracy).

But economic growth also has less desirable consequences. Growth can amplify class and economic disparities, lead to unmanageable urbanization areas, slums, environmental degradation, have no clear correlation to democratic forms of government (China is a stellar example) and, ironically, economic instability (take for example Greece, Spain, Portugal at the present time).

In general, thanks to economists as Banerjee and Duflo, the domain of development economics is finally trying to address its failure in alleviating the real problems human beings face. This is largely due to its insistence upon its own theoretical purity. Too often, economists are driven by ideology and resist challenging their honored assumptions (embodied in their models) by the insights from other sciences (psychology, anthropology, for instance). The work of Banerjee and Duflo evidences an effective challenge to ideologically driven economic assumptions by, in some ways, relating to us lessons that I recall were taught by the work of Marvin Harris several years ago. In his approachable, simple book, Cows, Pigs, Wars, and Witches, written in 1975, he showed to the lay public that what we assume to be irrational or bizarre behavior in an alien culture (and, most certainly, the poverty Banerjee and Duflo work with is indeed an alien world to most of us in America) has rational reasons to exist to the people in that cultural milieu.

For instance, Jeffrey Sachs believes foreign aid, if applied rationally and in large scale, can be effective in alleviating poverty. He presents a list of characteristics that aid programs should follow that are very optimistic and likely too unrealistic and impractical in today’s environment. Notably, Sachs believes aid should be centered on measurable outputs and less upon abstract ideals as democracy and economic growth.There is value in Sachs’ arguments however in that he emphasizes understandable, readily available technologically adept inputs, achievable targeted outputs, adequate financing from coalitions of funders. We should take Sachs’ argument with moderate seriousness because his approach seems based upon the flawed assumption of economic rationality (a least from the point of the intervening agency; the happy-path assumption that if we apply simply technology smartly, we get smart results, is deceptive).

Representative of more-or-less Libertarian inspired economic theories, espousing that aid causes more harm than good, would be the arguments of George Ayittey. He rightfully criticizes the premise of foreign aid by pointing to disappointing, conflicting results in Africa. He claims aid is motivated less by practical, realistic planning but rather from emotionally (meaning, irrational) biased motivations on the part of the developed countries. Aid invites corruption, waste,creates dependency and discourages innovation and empowerment for those to whom the aid is directed. But this kind of thinking is even more flawed than that of Sachs as it supposes the poor in foreign cultures are motivated by the same economic desires and goals as Ayittey himself.

Unfortunately, none of these authors define complete, realistic models that seem capable of providing a roadmap to a future of significantly reduced human suffering (which is the whole point of intervening with aid, or at least it should be). Banerjee and Duflo however have presented findings are based on very creative, informative experiments and meaningful data (or so it appears). Additionally, their sensitivity and ability to describe and understand “irrational behavior” is a very important example of critical thinking necessary for addressing this problem.

Banerjee and Duflo argue convincingly that common evaluation models for the effectiveness of aid is inadequate, or biased (if it is evaluated at all) and must be improved. The value of their work (aside from its successes, however limited in scale they appear), is to show that the so-called irrationality and short-sightedness of the poor that frustrates aid programs, or makes them appear to be so ineffective as to be ludicrous, has more to do with the blinders of culturally-biased assumptions of the aid granting countries.[ii] Banerjee and Duflo demonstrate an effective approach to researching and gaining understanding of how to address specific, small-scale improvement opportunities. They are also collecting valuable data.

Ignoring the potential ethical questions raised by critics (pointed out by Easterly in his NYR article) who observe, perhaps rightly, that aid is motivated by paternalistic assumptions, or even some kind of left-over colonialist collective guilt, of the aid granting countries, a interesting thought experiment is to imagine what the implications would be of a large scale replication of Banerjee and Duflo’s five lessons to “development” (leading to a significant alleviation of poverty).

For this experiment, suppose there are 1.5 billion “poor” in the world. Imagine if 30% of the world’s poor were effectively lifted from poverty (by whatever definition you have) in one or two generations (20-40 years). Now the world has about 450 million healthy, educated, intelligent people. Assume they have benefited from western-style prenatal care and their educational level has a mean of primary and secondary education (maybe up to our notions of an 8th grade level).

Have our models of development outcomes aimed at alleviated poverty given any thought as to what happens next? What are those healthier, smarter people going to be doing with themselves? Will there be a social, economic, environmental infrastructure capable of carrying this new population? To assume that all of the younger, smarter, ambitious would aspire to stay in their rural or small city settings to be teachers and social workers is hardly realistic. Would they instead be compelled to migrate to urban areas to seek economic opportunity? Would those urban areas be ready for this new migration? The larger scale cities hardly seem able to do that now.

The point here is that models of development need to take a whole system-of-systems in approach in its design, its measurement definitions, and not stop their models at the point of desired outcomes. In the Evaluation Logic Model [iii]sense, Outcomes lead to new situations with new complications and potential problems to solve. There are unending chains of Situation-Target-Outcomes in development aid. Planning and execution has to be informed such that aid does not lead to unintended consequences. Therefore, it seems an approach like Banerjee and Duflo’s coupled with some kind of systems thinking methodology (approaches like Peter Checkland, Gregory Bateson) could be developed as our next step.